October 31, 2012

Update on FTC v. Circa Direct: A Weighty Matter Finally Settled

Consumer Advertising Law Blog

On October 17, 2012, the US District Court for the District of New Jersey approved a settlement in FTC v. Circa Direct requiring the defendants to pay more than $2 million in assets, and to make clear when their messages are advertisements rather than news articles. We previously wrote on this issue in an earlier blog, in which we reported that earlier this year, the District Court had declined to approve the parties' proposed settlement.

In April of 2011, the Federal Trade Commission (FTC) filed a complaint charging Circa Direct and its owner, Andrew Davidson, with running misleading internet advertisements related to products including acai berry-based weight loss products. According to the FTC, Circa advertised products on websites that looked like news reports, and also bought ad space on legitimate news sites where they worded ads to look like previews of news stories.

In February, the parties agreed to a settlement and submitted a stipulated order for the court's approval. The order provided for a monetary judgment of $11.5 million and a permanent injunction against the defendants. Notably, however, it contained no admission of wrongdoing by Circa.

The New Jersey District Court declined to enter the order and concluded that it must ensure the settlement is fair. The Court specifically expressed concerns that a settlement without an admission of liability would not serve the public interest. The Court cited SEC v. Citigroup Global Markets, Inc., where the Southern District of New York held that it could not approve a settlement that similarly permitted the defendant to settle without admitting to any of the allegations against it. The Court ordered the parties to brief the issue of whether the Citigroup standard of review should apply. The parties agreed that the Citigroup standard, which asks "is the settlement fair, adequate, reasonable and in the public interest," applied, but argued that a lack of an admission of liability was not relevant to the Court's review in this case.

Subsequently, the Court ordered the FTC to further brief various issues, including whether a settlement with no admission of liability can be in the public interest. On September 11, 2012, following submissions by the FTC, the Court issued a conditional approval of the proposed settlement. To address the public interest, the court ordered the FTC to take steps to inform the public and "allow it to assess the truth of the FTC's claims" by hosting a webpage discussing the settlement. In its Order, the SEC noted that the Second Circuit had granted the parties' request for a stay in Citigroup, finding that they had demonstrated the factors necessary for a stay.

On October 17, 2012, following the parties' compliance with its earlier Order, the Court approved the settlement. While the Court's final order did not ultimately require the FTC to extract an admission of liability from the defendants, it did go further than simply "rubber-stamping" the proposed settlement. It remains to be seen whether the District Court's decision will set a higher standard for showing that settlements with federal agencies are in the public interest where defendants have not admitted liability.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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